Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

19-22 Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework

image text in transcribed

19-22 Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Rework cost per hour Variable Cost $79 Fixed Cost $115 Total Cost $194 Repair costs Customer support cost per hour 35 55 90 Transportation cost per load 350 115 465 Warranty repair cost per hour 89 150 239 SpeedPrint's current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $70 more than the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000 hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000. SpeedPrint believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year. 1. Should SpeedPrint change to the new component? Show your calculations. Required 2. Suppose the estimate of 140 additional printing presses sold is uncertain. What is the minimum number of additional printing presses that SpeedPrint needs to sell to justify adopting the new component? 3. What other factors should managers at SpeedPrint consider when making their decision about changing to a new component?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: W. Steve Albrecht, James D. Stice, Earl K. Stice

10th edition

324645570, 978-0324645576

More Books

Students also viewed these Accounting questions